Businesses and financial experts have sharply criticised a potential clampdown on salary sacrifice pension benefits in the upcoming Budget, warning that the move would amount to a stealth rise in Employer National Insurance and leave companies with even fewer ways to manage rising employment costs.
Rumours are circulating that the Chancellor could introduce a dramatic cap on the amount employees can sacrifice into their pensions, with some suggesting the annual allowance could be cut to as little as £2,000. Salary sacrifice agreements allow employees to give up part of their gross pay in exchange for non-cash benefits such as pension contributions. Because the adjustment is made before tax and National Insurance are calculated, both employers and employees reduce their NI liabilities.
While the Treasury is seeking ways to plug a significant fiscal gap, businesses warn that dismantling salary sacrifice would hit firms at a time when wage pressures are already intense. Many fear that if pension sacrifice becomes restricted, electric vehicle salary sacrifice schemes could be next, undermining one of the most effective levers employers have used to boost green transport adoption.
There is also deep uncertainty about when any changes would take effect. Some sources believe the government may act immediately on Budget Day; others think the cut could be delayed until April 2026. If implemented next year, employers may rush to lock in salary sacrifice arrangements before the window closes.
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